For Elon Musk, star-touched vision and messy reality collide
SPARKS, Nev. — For about an hour, Elon Musk sat on a stool inside Tesla Motor’s sprawling Gigafactory last week soberly answering questions in geeky detail.
Suddenly, an inquiry made him smile: How did the new factory make him feel?
“I find this place to be quite romantic,” said the electric car company's CEO, gesturing at the arid Nevada desert that was giving birth to his $5 billion battery plant. “The building is aligned on true north. I like that.”
Welcome to Elon’s World, a realm where manufacturing facilities pack a frisson of excitement, the notion of retiring on Mars isn’t viewed as crazy, and saving the planet is plotted through a series of all-nighters and "master plans."
The problem is that Elon’s World must coexist with the real world, a messy place where production gaffes impact delivery targets, rockets to Mars don’t come cheap, cars crash, regulators investigate and investors grumble.
As Tesla readies for its quarterly earnings report late Wednesday, the rising stakes of Musk’s many gambits – which now include Tesla’s desire to become an electric-energy company through its $2.6 billion bid for SolarCity – make this a pivotal point for the iconoclastic entrepreneur.
Voices: Musk goes for broke with Gigafactory
Musk, 45, has twice defied odds and pundits, once by scaling rocket company SpaceX in the face of government-funded global competition and again by growing Tesla while shunning input from Detroit. (Musk declined an interview request for this story.)
“You could make an argument that Elon is too ambitious, but he’s got a way of having a powerful impact on converging trends,” says Brook Porter, Green Global Fund partner with Kleiner Perkins Caulfield & Byers, a venture capital firm that famously passed on investing in Tesla early on.
As Musk takes on even more challenges, it's imperative the man who made his fortune co-founding PayPal show he's as good a builder as he is a dreamer, that his bold vision of the future can be realized without derailment from financial or product breakdowns.
It's not a given, even though his companies are now long past the start-up stage. Between all three companies, Musk employs about 33,000 workers. He's also responsible to more than 100,000 Tesla owners as well as the U.S. government, since SpaceX Falcon 9 rockets ferry supplies to the International Space Station.
So far, investors' faith in his vision has propelled Tesla (TSLA) stock up 750% to $227 from four years ago. But now the company must grapple with the very terrestrial issues of whether Musk's engineers, even operating at breakneck pace, can deliver on Musk's ambitions — and whether that vision, devoured by customers hungry for a slice of the future, has overreached, putting customers, investors and jobs at risk.
“Things get complex when you’re learning about rocketry and overseeing a factory being built, and complexity can be the killer of growth,” says Chris Zook, a Bain & Company partner who is co-author with James Allen of The Founder’s Mentality: How to Overcome the Predictable Crises of Growth. “And you can argue that at this point, Musk has never really seen this level of scale and complexity.”
Elon Musk recounts the secret history of Tesla Motors
There have been warning signs. Tesla missed its 17,000-vehicle delivery target last quarter by 3,000. Short sellers are circling. Skeptics point out that to fulfill its high valuation, Tesla would need to make good on Musk's claim that it will produce 500,000 cars a year by 2018 — or 10 times more than it makes now.
And federal safety regulators have launched a probe into a May crash that killed the driver of a Model S who was driving using the car’s Autopilot feature.
Tesla responded to the crash by saying it would refine the feature and cautioned drivers to stay vigilant. But Musk invited criticism for having touted the beta product’s virtues, saying in April that it was already “almost twice as good as a person." Then, after the crash was made public, he came under scrutiny for mingling condolences to the driver’s family with arguments about the relative safety of connected cars.
Driven
Ongoing fallout from the crash and concerns over Tesla's production output have threatened to drag Musk back to earth, to a place most CEOs and founders live day in, and day out — jousting with shareholders and the media, assuaging unhappy customers, finessing regulators.
How the South African-born entrepreneur, whose wealth is estimated at $12 billion, has vaulted his companies out of this earthly muck has been part intellect, part perseverance. Ex-employees say he's a workaholic with exacting standards for his team, a man who keeps a sleeping bag at the end of Tesla’s production line.
Musk provided a window onto his manic world with this tweet shortly before delivering his July “Master Plan: Part Deux” for Tesla: “Will be working at Tesla on Autopilot & Model 3 today, then aiming to pull an all-nighter and complete the master product plan.”
Conversations with former Tesla employees often surface the same sentiments: Musk is a genius able to handle more than the average CEO; working for him was a grueling highlight of their professional lives; it would be unwise to cite short-term hiccups as evidence that Musk won’t achieve his long-term goals.
The 3 craziest things Elon Musk said at Code conference
“Elon is amazing at unblocking mental, physical and financial boundaries,” says Ali Javidan, who worked for years without vacations as head of vehicle prototyping at Tesla from 2008 to 2012, and now is developing an electric vehicle for a stealth startup. “He doesn’t come up with ideas in the shower. He’s all about calculations, data and de-risking. It will all get done.”
Of Tesla's speed bumps, Javidan says they are merely the byproduct of Musk’s penchant for pushing his teams to meet aggressive deadlines, then walking those back when necessary. “Tesla, SpaceX, SolarCity, they’re all simply subsidiaries of Elon Inc.," he says. "Elon's got great teams in place, and his job, like Neo in The Matrix, is to see through and around corners.”
Skeptics: short on details
But many of those watching Tesla’s bottom line aren’t convinced Musk possesses such CEO superpowers.
In an investor note reflecting on Musk’s Master Plan, Barclays equity research analyst Brian Johnson wrote the treatise was “long on exciting visions of the future and short on financial details.”
Similarly, Kelley Blue Book analyst Akshay Anand noted that “Musk has laid out a grand plan, but it’s all in the execution for Telsa. With those lofty goals come items such as cash burn and production issues.”
Investor Jim Chanos said in May he was shorting both Tesla and SolarCity (SCTY) over profitability concerns. Roughly 20% of Tesla stock is held by short-sellers. In early June, Chanos compared Tesla to Valeant, the beleaguered pharmaceutical company whose stock has dropped 90%.
Abrams: Elon Musk is a bad role model for small businesses
“One of our historical signposts of a company in trouble is when numbers of senior people leave over a short period of time,” Chanos told CNBC in May, citing the departures of Greg Reichow and Josh Ensign, vice presidents of production and manufacturing respectively. “Tesla fits that bill.”
Musk is likely to face new hurdles by merging with SolarCity, a company led by his cousin Lyndon Rive and in which he was already the largest shareholder.
While Musk called it “a no-brainer” for its ability to make Tesla a one-stop, electric-shopping store, SolarCity’s current financials are less than sunny. The company ended the first quarter with $361 million in cash and over $1 billion in debt. It will need to raise $2 billion this year, Credit Suisse analyst Patrick Jobin said in a note to clients.
Shareholder concerns include the fact that this coupling could accelerate SolarCity’s burn rate while adding a new set of responsibilities to Musk's plate.
"Both SolarCity and Tesla are companies that will need a lot of cash to scale. Money is free now, but if that changes things might get a little hairy," says Dan Niles, co-founder of AlphaOne Capital Partners, an asset management firm.
But Niles also says Musk has an ace in the hole if he manages to create in the new Model 3 an object of global desire: "Whether Musk hits 500,000 cars a year doesn’t really matter if he has first mover advantage and produces a car that, much like the iPhone, has people saying, ‘That one, that’s the car that I want.’"
The key number: 500,000
Tesla’s trajectory is closely tied to whether its existing Fremont, Calif., plant and it evolving Gigafactory can make enough cars. It's nothing short of critical that Tesla hit that 500,000 annual production number once the comparatively mass-market, $35,000 Model 3 sedan ramps up production.
Investors are nervous. Tesla shares dropped to $220 after Musk announced his Master Plan (which included mentions of a forthcoming mini-SUV, pickup, and commerical trucks), only to later rebound. The stock is down about 12% year over year.
Tesla's market cap of $34 billion is also a source of investor concern. At that valuation, Tesla is creeping up on $47-billion General Motors, which produces some 10 million vehicles a year to Tesla’s 50,000.
A key to Musk’s future success will be “the choreography of evolving decisions to others, or the wires will overheat,” says author Zook.
Musk has a capable second in command at SpaceX, aerospace veteran Gwynne Shotwell, who serves as the company’s president. She's been key to Musk's 14-year-old space venture, which was valued at $12 billion during its last funding round. The company endured many scrapped missions before successful launches and re-entry landings help secure dozens of NASA contracts to send payloads to space.
There is as yet no Shotwell at Tesla. Although Musk is close with Tesla’s chief technology officer JB Straubel, he has yet to find an operational chief at the automaker.
Tesla, SpaceX no longer only game in town
Beyond leadership team issues, another concern is that while SpaceX and Tesla were, for a while, the ultimate place to work for the best and brightest engineers, there is now growing competition for such talent.
In aerospace, there’s Jeff Bezos’ Blue Origin and New Zealand-based Rocket Lab. In autos, Google, Uber and, if rumors are true, Apple are pursuing electric cars with sophisticated autonomous features. Musk has quipped that Apple is a "graveyard" for failed Tesla engineers, but the fact remains that it's tougher to retain employees.
“Things are definitely getting more complicated for Elon,” says Ashlee Vance, author of Elon Musk: Tesla, SpaceX and the Quest for a Fantastic Future, a biography that received Musk’s participation. “He piles more and more on his plate, but the world often doesn’t operate at Elon’s speed.”
In his book, Vance described how at Tesla's darkest hour, in late 2012, Musk reached out to his friend and Google co-founder Larry Page to sell Tesla. That didn't happen. Instead, Musk turned much of his staff into sales people, helping the concern avoid failure.
“Ultimately, Elon believes in Elon,” says Vance, who met with Musk monthly for a year. “And that’s served him OK so far.”
Former colleagues: 'don't bet against him'
Others who have gotten to know Musk say his push-the-envelope nature is at the root of his success.
“There is always tension between the visionary and the day-to-day, but that’s what causes things to happen as you figure out how the world is going to be,” says Ian Wright, who started Tesla along with Martin Eberhard in 2003 (Musk got involved by leading the company’s Series A financing round in 2004, eventually replacing Eberhard as CEO).
"It’s really hard to imagine how Elon does it all. He’s human like everyone else," said Wright, who left Tesla after a year and now heads electric engine company WrightSpeed. But he adds: "It hasn’t been smart to bet against him.”
Musk is known for creating an intense culture at his companies.
The challenges for Musk will be making sure that in such a pressure cooker environment “that people’s efforts are valued,” said former Tesla director of finance Ryan Popple, now CEO of electric bus maker Proterra. “He’s the master of getting more out of people than they think they can deliver.”
Elon Musk may or may not actually be Iron Man
Musk, taking questions at the Gigafactory, seemed typically unperturbed by the road ahead..
He riffed on everything from the beauty of the wild horses on the 3200-acre property, to why Tesla ultimately will dominate the market (“The best defense is speed, just look at the (Lockheed SR-71 supersonic) Blackbird, the most awesome plane ever, if you’re faster than anyone else, the rest doesn’t matter”).
But another question seemed to elicit a more down-to-earth answer, one that might calm investors and customers.
“Nothing could possibly go wrong!” Musk bellowed, provoking laughter in the room, after he was asked what was keeping him up at night.
“Seriously, I can’t think of one big thing, so maybe it’s a lot of small things,” he said. “A car is tricky because there are several thousand unique items, with so many different suppliers touching the product. You’re as fast or as good as your least competent supplier on the chain.”
That's a hitch Musk clearly hopes to engineer out of his business model with the Gigafactory. “This is the most exciting factory in the world,” Musk declared.
Certainly in Elon's World it is. Now he just needs to make it so in the real world.
Follow USA TODAY tech reporters Marco della Cava and Jon Swartz on Twitter.